The Sochi Olympics are too big to fail

Russia may have spent $50 billion to host the Olympics, but there's another number you should be focused on, and that's the billions of dollars that media companies, investors and sponsors have spent on the Olympics.

A group of torch bearers hold an Olympic torch at the North Pole during the torch relay to the 2014 Sochi Winter Games. Photo: AP

By now, you’ve probably heard that the Sochi 2014 Winter Olympics have become the most expensive Olympics in history. A project once budgeted at $12 billion has ballooned to $50 billion, thanks primarily to Russia’s sheer over-the-top audacity of trying to build a Winter Olympics host site almost entirely from scratch in a city with a subtropical climate.

But that’s the uncanny brilliance of it all – thanks to the perverse logic of global capitalism, the Sochi Olympics are now too big to fail.

What’s been ignored in most of the media discussion about how much Russia has spent to host the Olympics is exactly how much the world’s largest media companies, investors and multinational marketing sponsors have paid for a piece of the action.

When you add in how much Russia’s richest oligarchs have on the line, thanks to their massive investment in infrastructure projects, you start to get a picture of how much money is riding on a two-week TV sports spectacle televised to billions of people worldwide.

It’s no wonder NBC has been curiously silent during the whole LGBT controversy that has enveloped the Sochi Games – it’s not in the company’s best interests to make a big deal over something that could hurt it in the ratings department and sabotage its $775 million investment.

Which may be, why, on the NBC Today Show recently, a few tough questions to the head of the Sochi 2014 Olympic Organizing Committee about Sochi’s ability to host the Games were balanced out with friendly banter about how cool it would be to have a U.S.-Russia gold medal hockey finale. NBC wants a ratings bonanza, and that means plenty of American gold, silver and bronze. Even better if the Americans beat the Russians in doing so.

And then there are the mega-worldwide corporations which have put up billions of dollars to sponsor the 2014 Winter Olympics. Coca-Cola, for example, is the official sponsor of the 2014 Olympic Torch Relay and a worldwide sponsor of the Games. Samsung is handing out free smartphones to every single Winter Olympic participant. Visa is the official payment provider of the Olympics.

Norilsk was the first city in the Krasnoyarsk Krai to host the Olympic Torch. The Olympic Flame was delivered to the Arctic Circle by plane from Khanty-Mansiysk. Photo: Polar Division of MMC Norilsk Nickel

In the USA, companies like Kellogg's are already announcing their slate of Olympic athletes they’re sponsoring. P&G has a brand-new “Olympic mom” video series. The hope, of course, is to be able to put the face of an American gold medal winner on a box of cereal or a bar of soap and make millions from consumers after the Olympics have ended.

You can ballpark how much these companies have paid to become sponsors by checking out the sponsor totals for the London 2012 Summer Olympics. Becoming a worldwide sponsor for the 2012 Summer Olympics set you back $100 million. Becoming an official London 2012 Olympic sponsor set you back either $30 million or $60 million, depending on your commitment level.

And simply being an Olympic “provider” set you back $15 million. Those totals exceed $2 billion. You have to imagine roughly the same totals are at stake for the Sochi 2014 Winter Olympics, with roughly the same number of sponsors at roughly the same price points.

Now how about all the Russian and foreign investor money that was required to build not one – but two! – Olympic competition clusters entirely from scratch?

Remember, too, that all those venues had to be connected with new infrastructure – like a brand-new international airport in Adler, new highways, a new rail system and a completely refurbished seaport marina. (And, just for good measure, the Russians have also decided to build a new Disneyland-like complex right next to the Olympic Park just because, well, they could.) U.S. Olympic athletes have returned back from test events in Sochi, amazed at how surreal all this is.

Nobody really wants to admit how much they’ve paid for all this – especially the Russian oligarchs, who were basically strong-armed by Russian president Vladimir Putin to pay for a large part of all this in one form or another. In the U.S., it would be the equivalent of U.S. President Barack Obama gathering together America’s richest men – people like Warren Buffett and Bill Gates – in one smoke-filled room and forcibly extracting a few billion dollars from them collectively to ensure that a 2016 Summer Olympics in his Chicago backyard ran smoothly. Where Obama failed, Putin succeeded.

What exactly are Russia’s billionaires getting for all their money? You can basically check out the list of infrastructure required to host the Sochi Olympics and put a mental price tag next to each of the items – world-class ski resorts in the mountains, state-of-the-art rail stations, the new international airport in Adler, the refurbished seaport marina.

Putin basically took a list of these infrastructure needs in 2007 (when Sochi won its Olymic bid) and matched them with a corresponding deep-pocketed oligarch or corporation. It’s the Russian version of the American system of handing out naming rights to stadiums and venues in exchange for a sizable cash investment.

And then, of course, there are the Western investors in Sochi’s epic transformation into winter tourism destination. Companies like Dow Chemical are helping Sochi store snow ahead of the Winter Games. Alpine ski companies from Europe are helping to build and maintain Sochi's new world-class ski resorts in the mountains of Krasnaya Polyana.

Western hospitality brands have built brand-new hotels and alpine ski chalets in Sochi. All of them, to a remarkable degree, are invested in the long-term tourism potential of Sochi. The 2014 Winter Olympics have to be a huge success for them, or they may never see their initial investment pay off.

It’s all a long ways removed from the 1980 Moscow Games, when it was surprisingly easy for the West to boycott the Summer Olympics. The 1980 Moscow Games, in contrast to the 2014 Sochi Games, were not too big to fail. In short, not enough Western money was riding on the success of the Games in 1980 and the Russian economy wasn’t big enough to matter.

A lot has happened in the intervening 34 years – Russia has become a part of the global economy, investment in the future of Russia comes as much from wealthy oligarchs as it does the bureaucratic state, global brands are fully embraced in Moscow (especially luxury brands), and Russian athletes (most notably NHL hockey players and Wimbledon tennis stars) are now part of the global sports economy.

At the end of the day, nobody wants their money wasted – not the media companies, not the Western marketing sponsors, not the Russian oligarchs, not the foreign investors and especially not Putin. Sports fans, indirectly, also don’t want all this money wasted – they just want to enjoy the Olympic Games and not worry about global politics for a two-week period. While a number of factors could still derail the Winter Olympics, it’s becoming increasingly clear that Russia’s $50 billion bet on Sochi might actually pay off – especially if the price tag gets raised even higher between now and February 2014.

Special issue of RD Report on Sochi will be available in January. To get free access to it, sign up here.

Dominic Basulto is the U.S. editor of Russia Direct. He has extensive experience in digital media including a regular blog with The Washington Post and a daily blog on Winter Olympics host city Sochi. In addition to publishing the first-ever iPad travel guide to Sochi, Dominic has lived in the House of Writers in Moscow, taught finance at Moscow's first MBA program, published a weekly column for a Russian newspaper and completed a certificate program in Russian language from Moscow State University. He has an undergraduate degree in Politics and Russian Studies from Princeton and an MBA in emerging markets from Yale.